2021 National College Fed Challenge Winning Team Q&A (Pace University) | Summary and Q&A

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November 19, 2021
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Federal Reserve
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2021 National College Fed Challenge Winning Team Q&A (Pace University)

TL;DR

Students discuss the Federal Reserve's decision on asset purchases, inflation outlook, and the impact of the bipartisan infrastructure framework on their forecast and monetary policy recommendations.

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Key Insights

  • 📼 The Federal Reserve's decision to taper asset purchases was justified by substantial progress on both maximum employment and price stability.
  • 🤗 Inflation is elevated due to transitory factors, including supply chain bottlenecks and pent-up demand. However, inflation expectations remain anchored in the long run.
  • ❓ The bipartisan infrastructure framework's impact on the forecast and monetary policy recommendations depends on the timing and magnitude of the government spending.
  • ⛓️ Supply chain bottlenecks pose a potential threat to unanchoring inflation expectations, while wages have not consistently outpaced productivity growth and inflation.
  • 🍉 The reallocation process from a goods-based economy to a service-based economy may affect inflation in the near term and longer term.
  • 💄 The Federal Reserve should consider fiscal policy, such as the bipartisan infrastructure framework, when making monetary policy decisions.
  • 🥺 Persistent supply chain disruptions may prolong higher prices, leading to potential unanchoring of inflation expectations.

Transcript

change i'm going to read or hershey comes right now i'm going to read the team id we have for you if you could verify that it's correct we have 2 0 2 1 0 0 1 8 6 5 6. good morning everyone good morning how are you totally understandable i'm gonna read the team id one more time just in case people need to jot it down it's two zero two one zero zero ... Read More

Questions & Answers

Q: Was the Federal Reserve's decision to taper asset purchases appropriate given the macroeconomic conditions and outlook?

Yes, the Federal Reserve met the substantial further progress on both maximum employment and price stability mandates, justifying the decision to taper asset purchases.

Q: What are the key factors affecting the inflation outlook in the near term and longer term?

Inflation is currently elevated due to transitory factors like supply chain bottlenecks and pent-up demand. Near-term factors include base effects and changes in relative prices, while longer-term factors depend on the persistence of supply chain disruptions and the reallocation process.

Q: What is the potential threat to unanchoring inflation expectations? Is it on the supply side or the wage side?

At the moment, supply chain bottlenecks pose a significant threat to unanchoring inflation expectations. Sticky wages are less of a threat since real wages have not consistently outpaced productivity growth and inflation.

Q: How does the bipartisan infrastructure framework impact your forecast and monetary policy recommendations?

The framework's increase in government spending is expected to boost output and aid the economy's recovery. The Federal Reserve should consider this fiscal policy when making monetary policy decisions and may need to adjust the pace of tapering accordingly.

Summary & Key Takeaways

  • The Federal Reserve decided to start reducing the pace of its asset purchases in November 2021 based on substantial progress in both maximum employment and price stability.

  • Inflation is currently elevated due to factors such as supply chain bottlenecks and pent-up demand from fiscal stimulus, but it is expected to be transitory. Inflation expectations remain anchored in the long run.

  • The bipartisan infrastructure framework is expected to boost the economy over several years, but its impact on the forecast and monetary policy recommendations may require adjustment to the pace of tapering.

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